Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

ABC Electronics 10-year marketing campaign whereby the credit terms to customers will be relaxed together with other marketing strategies. This campaign would result in a

ABC Electronics

10-year marketing campaign whereby the credit terms to customers will be relaxed together with other marketing strategies. This campaign would result in a (forecasted) increase in sales of 3,000 units per year and a cash expense of $50,000 per year.

The new warehouse facility would cost $600,000. It will have ten-year usable life and would be depreciated over its life using the straight-line depreciation method (assume no salvage value).

Total variable costs are estimated at $200 per unit, which includes material and labour costs. The unit selling price of the product is $260.

As per the above forecasts and assume they remain the same every year, the 10-year marketing campaign and cost-saving due to the acquisition of the new facility would generate free cash flows of $109,000 per year.

HCL has a 30% tax rate and the company's liabilities amount to 60% of the total asset.

(i) Treasury bonds with $1,000 face value, 10 years to maturity, annual coupons of $50, and yield to maturity of 3% per year, which currently trading at the price of $1100 per unit, and (ii) Ordinary shares of company XYZ, which just paid a dividend of $0.50 per share, with dividend growth prospects of 4% per year and required rate of return of 8%. The share is currently trading at a price of $14.

Wanting to know and help help on:

  • Cost of equity
  • cost of debt
  • weight on equity
  • weight on debt
  • tax rate
  • weighted average cost of captial (WACC)
  • Discount rate
  • net present value (NPV)
  • internal rate of return (IRR)
  • payback period
  • expected 10 year cash flow
  • intrinsic value of the treasury bonds
  • what is the fixed cost
  • what is the variable cost
  • selling price total
  • cash break even point
  • accounting break even point

if calculations can be give by equation explanations, would assist me greatly

Regards,

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Theory and Practice

Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason

2nd Canadian edition

176517308, 978-0176517304

More Books

Students also viewed these Finance questions

Question

How did the plague contribute to the Renaissance?

Answered: 1 week ago